Articles – IRS All Star | John Willishttp://www.irsallstar.com
Professional tax service, Bankruptcy,unfiled tax returns, and Tax resolution serviceWed, 07 Dec 2016 15:02:15 +0000en-UShourly1https://wordpress.org/?v=4.6.1Basic Tax Rules That are Unlikely to Change Under Trumphttp://www.irsallstar.com/articles/basic-tax-rules-that-are-unlikely-to-change-under-trump.php
http://www.irsallstar.com/articles/basic-tax-rules-that-are-unlikely-to-change-under-trump.php#respondTue, 29 Nov 2016 17:35:29 +0000http://www.irsallstar.com/?p=1421Now that we have a new President who’ll be taking office this January, we can expect some changes to the tax rules coming down the pike.

However there are several areas that are highly unlikely to change. I’ll focus on several of those areas for now. We have to wait and see what kind of changes Trump is going to make and how those changes will affect the majority of taxpayers.

Forbes.com has posted a listing of 13 IRS tax rules that won’t change as a result of any of Trump’s Tax Plan. Mostly the things that won’t change are the basics that every taxpayer needs to be aware of. These are rules that have been in place for a very long time. I’m briefly highlighting these rules, however if you want the details you can go to

Everything is Income

No surprise here! The fact that the IRS considers every dollar that comes in as income is not likely to change. As everyone knows, the IRS taxes all income from any source, whether in cash or in kind: You win the Lottery, you get taxed; you win at the slot machines or the casino, you get taxed. You get the picture.

Here’s something that may not be as commonly understood by the majority of taxpayers as the first. The idea is that you always want to accelerate tax deductions and defer tax payments. However, if you have a legal right to money and say “pay me later,” it’s taxed now. But you can condition payment, such as refusing to sell your house or settle a lawsuit unless you are paid next year.

Foreign Bank Accounts

This may not affect a majority of American taxpayers, but those it does affect are in for a harsh awakening. Foreign accounts are being targeted more intensely than ever and that is not likely to change. While you don’t receive a 1099 form, you still must report the income generated in these accounts. Don’t be cavalier about this. This IRS has collected $10 billion as a result of offshore compliance.

Don’t Talk to the IRS

I always advise my clients to stick to this perfectly legal way of dealing with the IRS. If the IRS pays you a visit, either at your home or place of business, you’re best off declining to speak. Simply tell them your lawyer will call. If you do happen to say anything to the IRS, don’t lie.

File Even if You Can’t Pay

File returns even if you can’t pay. This is a no-brainer. There’s no faster way to attract the unwelcome attention of the IRS than not filing your taxes.

Next, you’ll want to pay small tax bills if you get a notice from the IRS, even if they’re wrong. I understand that small is relative, but don’t risk and audit or dispute by fighting over small sums.

Exercise Common Sense

The IRS, while massive and terrifying to many is not as scary as some people think. They are respectful and respond in kind to respectful taxpayers. Reply to every IRS letter, unless it says not to. This is increasingly important in the face of the growing incidence of tax fraud and scams with people posing as IRS representatives making threats.

If the IRS does red flag you for an audit, get professional help and advice. Trying to handle a tax case on your own is inevitably a mistake. Stick to these basics. They’re not about to change anytime soon. I’m sure we’ll be discussing the changes that are sure to come soon enough.

You did the smart thing and started a 529 College Savings Plan for your child and now your kid is finally off to college. It’s time to start using that money and there’s a slight learning curve toward using it compliantly.

The IRS will be watching you closely when you file your taxes in April. Many parents make mistakes that end up costing them more money or putting them in jeopardy with the IRS. I’d like to help you avoid making some rookie mistakes and keep Uncle Sam off your back.

Only Qualified Expenses Are Allowed

For starters, it’s important to withdraw money from your 529 Saving only for “qualified or eligible education expenses”. Eligible expenses include tuition, books and supplies, room and board, and special equipment required by the school or class. Computers, tablets and peripherals such as printers and education software are also covered.

Expenses that Are Not Covered

Be careful claiming expenses that aren’t covered which include travel expenses to and from campus, campus logo items such as hats, mugs, sweatshirts, and computer games. Do yourself a favor – review and stick to the expenses outlined by the IRS. The IRS allows for educational expenses not expenses that display your kid’s school spirit.

Teach Your College Student to Save Receipts

You will be required to show the IRS that withdrawals from your 529 go toward eligible educational expenses. You’ll have to submit documentation in the form of receipts, canceled checks and other forms of payment. Before your child heads off to college have this discussion and make sure he or she understands the importance of documenting all expenses. As you’ll soon find out, if you haven’t already, privacy rules very often don’t allow parents to view bills and expenses from the university. Your child will be making many of the qualified purchases, but you will be responsible for any liability if your withdrawals exceed the qualified expenses or if you cannot substantiate the expenses.

The Most Common Freshman Parent Error: Tuition Payment Mistakes

Remember tax year vs. school year and you may avoid this very common mistake. Qualified expenses must align with withdrawals from your 529-account in the same tax year. If you withdraw 529-plan money in December for tuition the next semester—and don’t pay the actual bill until January (a new tax year)—you may find that you’ve exceeded your withdrawals for this year. In addition you might leave yourself short on money to pay for qualified expenses the next year. If you take money out of your 529 account to pay for next year’s tuition in the current year, make sure it is paid to and logged by the school’s Bursar’s office before the end of the current year.

Hopefully these tips will help you out at tax time and also give you an A+ for doing an equally great job paying for your child’s higher education as you have done saving for it.

]]>http://www.irsallstar.com/articles/first-time-freshman-parents-and-529-savings-tax-benefits-tips.php/feed0Going Back to School Can Make The Going Easier at Tax Timehttp://www.irsallstar.com/articles/going-back-to-school-can-make-the-going-easier-at-tax-time.php
http://www.irsallstar.com/articles/going-back-to-school-can-make-the-going-easier-at-tax-time.php#respondThu, 18 Aug 2016 10:08:44 +0000http://www.irsallstar.com/?p=1405

Whether you’re sending your kid to college, kindergarten or anywhere in between, you might be able to claim a few substantial tax deductions.

Perhaps you’ve even decided to go back to school to prepare for a new career or simply for the love of continuous learning. Whatever your circumstances, once you review the items below you may discover that you can keep a little more of your hard earned cash instead of having to give it to Uncle Sam next April. Remember to keep track of your expenses for those deductions that are allowed.

Private School Tuition, School Uniforms and Childcare

Neither private school nor parochial school tuition at the primary level is deductible. School uniforms are also not deductible even if they are required. However, the childcare component costs of private school tuition for children under 13 may qualify for a tax credit.

Tax Deductions for School Fundraisers are Limited

You are required to reduce your deduction by the market value of any goods or services received in return for your charitable donation.

College Moving Expenses Are Not Deductible; College to Job Expenses May Be

If you have a kid in college you probably already know that expenses incurred moving them to college are not deductible. But, if your kid is moving directly from college for that first job, those expenses may be eligible for the moving expenses deduction.

Student Loan Interest is Deductible Above the Line

Student loan interest is generally deductible as an above the line deduction, which means you do not have to itemize in order to claim the deduction. There is a student loan interest deduction of up to $2,500 for paying interest on a student loan used for higher education.

Earnings in 529 Plans Are Not Federally Taxable

The good news is that the money in a 529 plan grows tax-free and withdrawals are not taxable as long as the money is used for eligible college expenses.

Use Tax-Deferred Accounts to Pay for Educational Expenses

You can use tax-deferred accounts (i.e., an Educational Savings Account) to pay for qualified educational expenses including books and computers for elementary, high school and college expenses.

American Opportunity Tax Credit

The American Opportunity Tax Credit (AOTC) can amount to $2,500 in tax credits per eligible student and is available for the first four years of post-secondary education at a qualified education institution. Up to 40% of the credit is refundable, which means that you may be able to receive up to $1,000, even if you have no tax liability. Eligible expenses include tuition at an eligible institution, books and required supplies, but not room and board, medical expenses, insurance, etc. Income limits apply. A new regulation requires you to have the 1098-T from the qualified educational institution to take the AOTC, and the credit has to be based on amount paid and not billed.

Lifetime Learning Credit

Up to a maximum of $2,000 credit for qualified education expenses paid for a student enrolled in an eligible educational institution. The credit is a nonrefundable credit of 20% of a maximum $10,000 in qualified education expenses. There is currently no limit on the number of years you can claim the credit. Income limits apply. Please keep in mind, this credit does not allow for some of the items that are allowed for the AOTC. This credit is generally based on tuition and fees.

Tuition and Fees Deduction

The Tuition and Fees Deduction applies to qualified education expenses for higher education for an eligible student taking undergraduate, graduate or post-graduate courses. The deduction gradually phases out after a certain income range. There is no limit to the number of years the credit can be claimed

]]>http://www.irsallstar.com/articles/going-back-to-school-can-make-the-going-easier-at-tax-time.php/feed0Haven’t Victims of Data Breaches Been Taxed Enough?http://www.irsallstar.com/articles/havent-victims-of-data-breaches-have-been-taxed-enough.php
http://www.irsallstar.com/articles/havent-victims-of-data-breaches-have-been-taxed-enough.php#respondThu, 28 Apr 2016 19:01:49 +0000http://www.irsallstar.com/?p=1357During the 2014 tax season we were all reminded, almost on a daily basis, about the numerous data breaches that occurred. It seemed that the identity of every taxpayer was at risk. Private industry had data breaches as did the federal government with one of the most massive data breaches occurring at the IRS.

This is made clear in a recent article in Accounting Today, “Data breaches have been a growing problem in private industry and the federal government, including the IRS, which revealed in May that organized criminals had used its online Get Transcript application to access the tax returns of an estimated 104,000 taxpayers

Now, it appears that the IRS seems to think they are doing individuals and businesses a big favor by merely considering not to tax either on payments made to the companies that serve those who’ve had their identities stolen in the numerous data breaches. According to Accounting Today, “Despite the efforts of many businesses, government agencies and other organizations, data breaches and computer hacking can expose the personal information of employees and customers to identity thieves. In response to such data breaches, the IRS noted that organizations often provide credit reporting and monitoring services, identity theft insurance policies, identity restoration services, or similar services to their customers, employees and other individuals whose personal information may have been compromised as a result of a data breach. These identity protection services aim to prevent and mitigate losses due to identity theft resulting from the data breach.”

The article continues, making it seem as though the IRS is trying to be reassuring, “The Internal Revenue Service said it will not assert that an individual whose personal information may have been compromised in a data breach must include in gross income the value of the identity protection services provided by the organization that experienced the data breach.”

The very fact that the IRS is putting time and resources into pondering whether or not taxpayers should be taxed on recovering their identities and reputations as responsible citizens is disconcerting. It would appear the IRS might want to place all of their limited resources due to massive budget cuts toward correcting the problem that allowed their systems to be breached in the first place. And, they might be better served by making efforts to ease the burden of those taxpayers who were treated like criminals while the criminals were treated like innocent taxpayers whose identities they stole.

And as it turns out, the pondering continues as the Accounting Today article reports that, “However, questions have been raised concerning the taxability of identity protection services provided at no cost to customers, employees or other individuals whose personal information may have been compromised in a data breach. The IRS’s existing guidance has not specifically addressed these questions.”

So, the fact of the matter is that no one knows what stand the IRS will take on that item. Taxable or not taxable, that is the question. Meanwhile the data breaches go on promising to disrupt many more lives in the 2015 tax season and beyond.

Back in the 1990’s Congress passed a taxpayer bill of laws twice. However, the IRS took the initiative to adopt one this year without being forced to by Congress. Perhaps the overwhelming discontent for the IRS held by taxpayers around the country finally inspired the IRS to take action.

If you’ve ever had an unsatisfying interaction with the IRS, you can be certain you are not alone. The IRS is fully aware of how they are perceived and the massive government body is letting you know you have rights in the off-putting and discouraging tax process.

The Taxpayer Bill of Rights is also a powerful tool in the hands of an experienced tax attorney too. The IRS has taken existing rights in the tax code and has grouped them into 10 categories. According to a forbes.com article, “The IRS says it had extensive discussions with the Taxpayer Advocate Service.” Apparently they also paid attention to surveys conducted by National Taxpayer Advocate Nina E. Olson who has discovered through her surveys that, “most taxpayers do not believe they have rights before the IRS and even fewer can name their rights.”

According to the forbes.com piece, Ms. Olson also believes the new Taxpayer Bill of Rights will be very helpful to taxpayers when it comes to understanding their rights in the system.

The Forbes piece posted the bill of rights saying, “Like the U.S. Constitution’s Bill of Rights, the Taxpayer Bill of Rights contains 10 provisions. They are:

The Right to Be Informed

The Right to Quality Service

The Right to Pay No More than the Correct Amount of Tax

The Right to Challenge the IRS’s Position and Be Heard

The Right to Appeal an IRS Decision in an Independent Forum

The Right to Finality

The Right to Privacy

The Right to Confidentiality

The Right to Retain Representation

The Right to a Fair and Just Tax System

You’ll be able to find the rights on irs.gov and they have been published by the IRS in a booklet called “Your Rights as a Taxpayer,” that was sent to millions of taxpayers. And more good news is that while the publication initially will be available in English and Spanish, it will soon be available in Chinese, Korean, Russian and Vietnamese.

Taxpayers now can stand up for their rights with or without representation. Abuses by anyone representing the IRS will no longer be tolerated as the word spreads that there is an established and followed Taxpayer Bill of Rights. Another bit of ammunition in the arsenal against tax fraud scammers never hurts either.

]]>http://www.irsallstar.com/articles/congress-not-needed-irs-adopts-its-own-taxpayer-bill-of-rights.php/feed0Procrastinators Get Four Extra Days To File Tax Returnshttp://www.irsallstar.com/articles/procrastinators-get-four-extra-days-to-file-tax-returns.php
http://www.irsallstar.com/articles/procrastinators-get-four-extra-days-to-file-tax-returns.php#respondFri, 01 Apr 2016 14:39:46 +0000http://www.irsallstar.com/?p=1325It may not seem like much, but to hardcore procrastinators four days could seem like heaven especially when it comes to getting taxes filed without an extension.

Here’s how that works. Because we are in a Leap Year, you’ll get that extra February 29th day. And because of the celebration of Emancipation Day in the District of Columbia, the official deadline is April 18th. Even better if you live in Massachusetts or Maine, both of which celebrate Patriots Day, you get an extra fifth day to file.

The one thing procrastinators need to take into consideration is that identity theft may still be a problem and those cyber thieves seem to thrive on taxpayers coming late to the party, so to speak. If you insist on waiting until the very last minute to file, stay alert to any communication via regular mail from the IRS shortly after you’ve submitted your tax return. Very often the first indication of fraud is a notice from the IRS that a tax return already has been filed with a taxpayer’s Social Security number.

The IRS is taking measures to help avoid identity theft and refund fraud. There was a big security summit held last year where the IRS, tax preparers, state representatives and software companies met to establish standards for authenticating tax filers online, and sharing information with the IRS and state departments of revenue on patterns of fraudulent behavior. Last November the IRS also launched a public awareness campaign in which they issued a series of tips on how to protect personal data online.

The issue is that as technology becomes more sophisticated so do the criminals. With greater avenues for personal data on social media it becomes easier to access information that allows them to take on false identities and look legitimate to the IRS and their new safety systems.

As a result of the security summit and new safety protocols, taxpayers filing electronically might see requests for stronger passwords, and security questions to help validate that they are who they say they are. Instead of feeling annoyed at the extra steps, taxpayers should feel safer filing their taxes.

You should also keep in mind that the IRS never initiates contact with taxpayers via any method other than regular mail. They never communicate via electronic media. They never text or reach out through any social media. In addition, the IRS never requests personal or financial information.

If your identity is stolen, resolving the issue can take months, even longer. It’s very difficult for taxpayers as well as practitioners to effectively resolve issues.

The IRS began accepting tax returns on January 19th. If you are a procrastinator, you have until April 18th, four extra days to drag it out. But remember, you could become a target for identity thieves filing taxes using your social security number. Whatever you choose to do, file your taxes. It is a criminal offense not to file.

]]>http://www.irsallstar.com/articles/procrastinators-get-four-extra-days-to-file-tax-returns.php/feed0Get a Leg Up On Getting The Best Tax Breakshttp://www.irsallstar.com/articles/get-a-leg-up-on-getting-the-best-tax-breaks.php
http://www.irsallstar.com/articles/get-a-leg-up-on-getting-the-best-tax-breaks.php#respondTue, 29 Dec 2015 16:31:19 +0000http://www.irsallstar.com/?p=1296Generally speaking, there is a bit of a lull in work and celebrating during the week between Christmas and the New Year. This is a great time to start preparing for tax time.

A few hours spent collecting receipts, and reviewing credit card and bank statements now will help you get the best tax breaks for 2015. These records may hold a treasure trove of unexpected expenses you’ll be able to claim. So take the time now while you have some quiet time to review and get the best tax break possible.

In addition, here are a few more items to take advantage of if you haven’t already.

Still Time To Make IRA or 401(k) Contribution

If you have time before December 31st, and if you have an IRA or an employer sponsored 401(k) or equivalent type plan, consider making a contribution if you have not yet reached the plan’s limit. The beauty of contributing now is that you don’t get taxed and the contribution will reduce the amount of income tax you owe this year.

Itemize

Itemize deductions on your tax return. Typically the more itemized deductions you have, the more you can reduce your income tax bill. The IRS offers the following guidelines regarding miscellaneous deductions. “If you itemize deductions on your tax return, you may be able to deduct certain miscellaneous expenses. You may benefit from this because a tax deduction normally reduces your federal income tax.

You can deduct most miscellaneous expenses only if they exceed two percent of your adjusted gross income.

Deductions Subject to the Two Percent Limit.

Unreimbursed employee expenses

Expenses related to searching for a new job in the same profession

Certain work clothes and uniforms

Tools needed for your job

Work-related travel and transportation

Deductions Not Subject to the Two Percent Limit.

Some deductions are not subject to the two percent of AGI limit. Some expenses on this list include:

Certain casualty and theft losses: This deduction applies if you held the damaged or stolen property for investment. Property that you hold for investment may include assets such as stocks, bonds and works of art.

Gambling losses up to the amount of gambling winnings

Losses from Ponzi-type investment schemes

Many expenses are not deductible. For example, you can’t deduct personal living or family expenses. Report your miscellaneous deductions on Schedule A, Itemized Deductions. Be sure to keep records of your deductions as a reminder when you file your 2015 taxes.”

If you’ve been in trouble with the IRS in the past, getting the best tax break may not be the only thing on your mind. If that is the case, it’s important to understand that IRS compliance is absolutely mandatory. At IRSALLSTAR, our team of tax professionals is here to help.

Contact us for help with your tax problems and let us keep handling your taxes to ensure you stay out of trouble in the future. You’ll be assured of staying in compliance and always getting a leg up on the best tax breaks possible.

]]>http://www.irsallstar.com/articles/get-a-leg-up-on-getting-the-best-tax-breaks.php/feed0Will The Security Summit Keep Taxpayers Secure?http://www.irsallstar.com/articles/will-the-security-summit-keep-taxpayers-secure.php
http://www.irsallstar.com/articles/will-the-security-summit-keep-taxpayers-secure.php#respondTue, 17 Nov 2015 15:45:36 +0000http://www.irsallstar.com/?p=1286Thanksgiving is upon us. Without question there is much to be thankful for. And as we gallop toward another tax season, we can be thankful that the IRS reached out to private sector tax industry leaders and states to form a Security Summit whose mission it is to create processes in the tax filing systems to prevent fraud and identity theft.

According to an Accounting Today article, IRS Commissioner John Koskinen was quoted as saying, “Working together, the states, industry and the IRS came up with more than 20 data components that we can collect and share with each other when a return is filed.” He continues with, “This data, which is largely invisible to the taxpayer when their return is filed, will shine new light on potentially fraudulent returns.”

This is good news, considering how many hundreds of thousands of taxpayers were hit by the scammers and online thieves in the past few years, to the tune of hundreds of millions of dollars. That money comes out of the IRS coffers. It is money that is designated to keep our country’s infrastructure sound and efficient. Money that improves the roads you drive on, the schools your kids go to, the parks you play in, the clean air you breathe and water you drink, the electrical grid that delivers you power, the people who cart away your garbage, the military that deters foreign invasions, the police that maintain order, the system of laws and courts that enforce contracts and make commerce possible, the internet you use every day, the medical treatments that might save your life and the lives of those you love. Is it any wonder that the IRS has had to reduce its workforce in light of the millions of dollars given to criminals?

We fail to take these things into consideration. The IRS has a truly gargantuan task. And they cannot do it alone. Which is why, I, for one am grateful they have reached out and asked for help.

According to Accounting Today, “Along with the data sharing, the IRS will also continue to use its recently introduced Return Review Program to prevent fraud.” Koskinen said, “This is a relatively new and sophisticated fraud detection system designed by the IRS specifically to protect taxpayers.” He added, “I’m not interested in giving criminals a roadmap to our system, so I won’t go into a lot of details on which data components we’re looking at, but let me give you just a few basic examples. If tax returns come from the same foreign Internet address, we’ll see that. If many tax returns are filed from the same device, we’ll see that as well. We can also see how long it takes to prepare a return online from the time a person logs in to when the return is filed electronically, so if a tax return appears to be automatically generated by machine, we’ll find that out as well. All of these give us a better defense against criminals trying to use stolen taxpayer information to file tax returns that are false and claim refunds, and we can do a better job of stopping the refund before it goes out the door.”

As far as I’m concerned this is great news and something I am grateful for. The IRS doesn’t usually make it into my list of people, places and situations I’m thankful for during Thanksgiving. But, this year, I am making an exception.

]]>http://www.irsallstar.com/articles/will-the-security-summit-keep-taxpayers-secure.php/feed0Love, Taxes & Marriage: A Year-end Strategyhttp://www.irsallstar.com/articles/love-taxes-marriage-a-year-end-strategy.php
http://www.irsallstar.com/articles/love-taxes-marriage-a-year-end-strategy.php#respondTue, 03 Nov 2015 15:46:11 +0000http://www.irsallstar.com/?p=1217Ah, love and romance! It’s such an exciting feeling and some people think that all of life should be as effortless as falling in love. However, when love leads to marriage every couple needs to include conversations about the taxman before heading to the altar of love! Uncle Sam has specific tax rates for married couples that need to be taken into consideration, especially if you’re considering getting hitched before the end of the year or early next year.

As far as the IRS is concerned, if you marry on December 31st, you are considered married for the entire year. So, when it comes to federal income taxes, those marrying next year may come out ahead by deferring or accelerating income, depending on the circumstances. If possible it might be advantageous to defer a year-end marriage until next year.

Graduated Tax Rates

What you need to look at or discuss with your tax attorney or accountant, is how filing jointly is going to affect your tax rates. The combined income of you and your intended spouse may put you into a higher tax bracket. Some people consider that a marriage “penalty”, however in some cases there are advantages.

For instance, if your joint income is at the top of the 10% and 15% tax brackets you’ll be taxed exactly twice as high as the ceilings if you were single in the same brackets. Taxes used to be less than double and Congress is making strides to change this.

Bonus Implications for Year-end Planning.

The more unequal your incomes, the more likely that combining them on a joint return will bring the higher-earner’s income into a lower bracket. That’s where you’ll see a marriage tax bonus. If this is your case, it will probably be better to defer income to next year if you are to be married next year. If you are in the planning stage, you might want to accelerate the marriage into this year if at all possible.

Keep in mind that you cannot avoid a marriage penalty by filing as a single person. You will either have to file “married filing jointly” or “married filing separately.” Rarely, if ever, does the married filing separately work to lower a couples’ tax bill.

And don’t try to play the mix and match game where one of you itemizes and claims all the deductions while the other claims a standard deduction. It doesn’t work that way. Both husband and wife must either itemize or use the standard deduction.

The same holds true for same-sex marriage on federal income taxes. Things are more complicated at the state level because most states that prohibit same-sex marriage do not recognize such marriages for state-income-tax purposes.

Post Honeymoon Details

Once you’ve tied the knot and you and your new spouse are back to daily life, the first order of business you’ll want to attend to is head to human resources and adjust withholding from your paychecks. Many double income couples have to worry more about under-withholding than over-withholding. The goal is to match withholding with what you’ll actually owe for the year — so you get neither a big refund nor a nasty tax surprise when you file.

Next think about the benefits you each enjoy and see if you can save money by switching to one or the other’s medical plan for instance. And, finally, if you are changing your name, be sure to let Social Security know about your name change. And may the three of you live happily ever after. You, your spouse and Uncle Sam!

]]>http://www.irsallstar.com/articles/love-taxes-marriage-a-year-end-strategy.php/feed0Alabama Deputy Tax Commissioner Victim of Tax Fraudhttp://www.irsallstar.com/articles/alabama-deputy-tax-commissioner-victim-of-tax-fraud.php
http://www.irsallstar.com/articles/alabama-deputy-tax-commissioner-victim-of-tax-fraud.php#respondThu, 08 Oct 2015 14:14:31 +0000http://www.irsallstar.com/?p=1194It was a record-breaking year for tax fraud, and the big news is that the blatant criminals are not the only ones who made big bucks. Millions of dollars flowed into the pockets of companies all down the line, from the tax preparation software companies to the banks where the illegally gained money was deposited.

According to an article on KrebsonSecurity.com, “When identity thieves filed a phony $7,700 tax refund request in the name of Joe Garrett, Alabama’s deputy tax commissioner, they didn’t get all of the money they requested. A portion of the cash went to more than a half dozen U.S. companies that each grab a slice of the fraudulent refund, including banks, payment processing firms, tax preparation companies and e-commerce giants.” By following the money trail, investigators are discovering that tax fraud is big business. Our state’s Deputy Tax Commissioner is not the only state commissioner who fell prey to fraudsters. According to KrebsonSecurity.com, “several of Utah’s senior tax administration officials also were victimized by ID thieves this year.”

The IRS says they are working toward a solution, so taxpayers can feel safe once again. However, the problem may be more difficult to nip since so many are making so much money. The taxpayer is at the mercy of the IRS, the fraudsters and now the companies that make the tax return programs they use. In this kind of situation, Catch-22 comes to mind. When you see how the process works, you’ll understand also why it’s going to be challenging to put an end to the fraud.

KrebsonSecurity.com explains, “When tax scammers file a fraudulent refund request, they usually take advantage of a process called a refund transfer. That allows the third party firm that helped prepare and process the return for filing (e.g. TurboTax) to get paid for their services by deducting the amount of their fee from the refund. Effectively, this lets identity thieves avoid paying a dime to TurboTax or other providers for processing the return.” This gives TurboTax and other filing programs a very nice payday.”

Continuing to use the Alabama Deputy Tax Commissioner as an example, the KrebsonSecurity.com article continues, “In Garrett’s case, as with no doubt countless other fraudulent returns filed this year, the thieves requested that the return be deposited into a prepaid debit card account, which they could then use as a regular debit card to pay for goods and services, and/or use at ATMs to withdraw the ill-gotten gains in cash.”

What’s more, the crooks asked the government to deposit $2,000 of the $7,700 they applied for in his name to an Amazon gift card ($2,000 is the maximum allowed under the Amazon gift card program). This is just another way for thieves to hedge their bets in case the debit card to which the majority of the stolen funds gets canceled.

Garrett’s boss, Julie Magee, Alabama Department of Revenue Commissioner had this to say, “There are so many people making money off of electronic transfer of funds, it’s ridiculous. Five different financial institutions touched the fraudulent refund they filed in Joe’s name before it went to the thieves.”

Big money means a big problem with little hope for any kind of solution in the near future. Brace yourself, taxpayers, for more tax fraud to come.